The FTSE 100 was rising sharply in morning trading after the US agreed a $2tn stimulus package in the early hours of Wednesday morning.
The UK’s leading index rose 3.8% this morning, hitting 5,654 points in the first trading hour, after US politicians agreed a package which includes money to bail out industries that have been affected by the crisis.
The US rescue deal follows five days of negotiations which markets have fixated on. “At last we have a deal,” Senate Majority Leader Mitch McConnell said shortly before 2am Washington DC time on Wednesday morning. “In effect, this is a wartime investment,” he added.
The full details of the planned legislation are expected to be published in the coming days, but investors were already buoyed by the expected deal yesterday.
The Dow Jones Industrial Average enjoyed its fourth best percentage gain of all time, at 11.4%, surpassed only by gains posted amid the chaos of the Great Depression — and greater than any figure during the 2008 Global Financial Crisis. The Dow has managed to break out of the falling highs downward channel on the hourly time frame, the question will now be whether it can sustain this momentum, otherwise selling pressure will return.
However, the headlines on Tuesday were far from universally positive. Economic data showed that the US services sector has slumped even further than anticipated, with the March IHS Markit services purchasing managers index posting its sharpest contraction since 2009. It fell from 49.4 to 39.1, versus an expectation of 42 (any reading below 50 indicates contraction). The manufacturing sector also reported a drop in demand, adding to an ever increasing list of troubling data points. Similar contractions were reported in the UK, Germany, France and the Eurozone more broadly.
Hardest hit industries lead historic rally
It was the sectors that have suffered the most in recent weeks that led Tuesday’s mammoth rally, with the S&P 500’s energy names rallying 16.3%, financials 12.8% and industrials 12.8%. Within the industrial sector, airlines had the best day with a 19% gain; Delta Air Lines climbed 21% despite S&P Global Ratings downgrading its credit rating to junk status, as investors focused on the anticipated incoming bailout for the industry. However, the market rally only went a fraction of the way to repairing the damage done over the past month. Delta, for instance, is still down more than 50% year-to-date.
Of the 30 names in the Dow Jones Industrial Average, Verizon was the only firm to post a negative day, while Chevron, American Express and Boeing all climbed more than 20%. Boeing’s CEO said that, while it has asked Congress for $60bn to help the aerospace industry — in large part aimed at its suppliers — the firm could survive without a taxpayer bailout. In other corporate news, Facebook said on Tuesday that usage of its services has spiked due to the coronavirus pandemic, but that it is anticipating significant declines in digital advertising revenue. “We don’t monetise many of the services where we’re seeing increased engagement, and we’ve seen a weakening in our ads business in countries taking aggressive actions to reduce the spread of Covid-19,” wrote two executives from the social media giant.
S&P 500: +9.4% Tuesday, -24.3% YTD
Dow Jones Industrial Average: +11.4% Tuesday, -27.5% YTD
Nasdaq Composite: +8.1% Tuesday, -17.3% YTD
Second best day on record for FTSE 100
The FTSE 100 delivered its second best percentage gain on record on Tuesday, climbing 9.1% as investors focused on stimulus hopes from the US over growing evidence of an impending recession. Similar to the US, it was the names that have been hit hardest in the bear market so far that led the way, and the rally drowned out economic data showing that manufacturing, services and overall business activity slumped dramatically in March. Cruise firm Carnival, Royal Dutch Shell and BP led the FTSE 100, with gains of 28.3%, 22.9% and 21.6% respectively. Grocery names Ocado Group was one of just four firms in the FTSE 100 that posted a negative day, although it has held up well in general, posting a 14.2% gain over the past month as demand for online grocery delivery has soared.
The FTSE 250 jumped by a record 8.4% on Tuesday, although its 35.2% year-to-date loss still lags its large cap counterpart significantly. Gambling firm William Hill, Cineworld Group and Cairn Energy led the way, all delivering 30% plus share price increases.
FTSE 100: +9.1% Tuesday, -27.8% YTD
FTSE 250: +8.4% Tuesday, -35.2% YTD
What to watch
Micron Technology: Computer memory maker Micron reports its latest set of quarterly earnings on Wednesday, on the back of a week that has seen its share price jump 15.8% as part of a broader rally for its sector. Year-to-date, Micron is now down 19.5%, faring significantly better than the broader market. According to Susquehanna Financial analyst Mehdi Hosseini, the firm’s exposure to China means it could be cushioned from the pandemic fallout due to the advanced stage of the coronavirus recovery in the country. Wall Street analysts are anticipating an earnings per share figure of $0.37 and have swung heavily in favour of a buy rating versus three months ago. Currently, there are 28 buy or overweight ratings, five holds, and two underweight or sell, versus 21 buy or overweight ratings, 11 holds and three underweight or sells three months ago.
US durable goods orders: February durable goods order data is released today. As with many February data releases so far, the figures will not capture the worst of the coronavirus impact but will be watched for potential warning signs. Durable goods are those that last for long periods, such as furniture, home appliances and cars. Orders are expected to tumble as economic uncertainty leads consumers and businesses to hold off on investing in such goods, and supply chain disruptions affect the ability of companies to get goods to where they need to.
The recovery in cryptoassets continues apace, with further gains made overnight to leave some up around 40% from lows.
Bitcoin is now back at $6,715, knocking on the door of the $7,000 mark, after jumping from under $5,000 just nine days ago.
Ethereum and XRP have also rocketed off lows, with Ethereum now at $137.4 a coin, and XRP at $0.161 as risk appetite returns among investors following the huge response to the crisis seen around the world.
Elsewhere in crypto, Indian exchanges continue to raise capital following the Supreme Court ruling a few weeks back lifting the ban on providing banking services to crypto exchanges. CoinDCX is one such exchange who has benefitted, raising $3m in a Series A funding round, even though they already had 35,000 users before the regulatory change, they have since seen sign ups increase 10 fold.
The People’s Bank of China also reported yesterday that they are one step closer to issuing a digital yuan. The national digital currency project, in collaboration with private companies is said to be progressing smoothly and the currency’s basic function has been developed. With the launch date still unconfirmed, it’s possible the timeline is being accelerated in light of the coronavirus outbreak.
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